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2014-12-16 ORR-001
Office of Rail Regulation

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Network Rail's CP5 delivery and issues for CP6


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Office of Rail Regulation
ORR
maintenance
renewals



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Office of Rail Regulation

Network Rail's CP5 delivery and issues for CP6
_______________________________________________________________


date
16 December 2014
source Office of Rail Regulation
type Letter



OFFICE OF RAIL REGULATION

Anna Walker
Chair
Telephone 020 7282 3696
Fax 020 7282 2043
E-mail anna.walker@orr.gsi.gov.uk

16 December 2014

Richard Parry-Jones
Chair
Network Rail
1 Eversholt Street
London NW1 2DN


NETWORK RAIL'S CP5 DELIVERY AND ISSUES FOR CP6

Dear Richard

I am writing to you following our recent Board to Board session in November, at which we discussed performance in the .first six months of CP5 and how we are beginning to draw out our emerging thinking for the next periodic review (PR18).

Delivery in CP5
We discussed the importance of the delivery of the CP5 programme (maintenance, renewals and enhancements) if our rail network is to have the resilience it needs to deliver reliably for users and to cope with future expected growth in both passenger and freight traffic. The CP5 final determination funded Network Rail significantly in all three of these areas.

In the final determination for CP5 we all recognised that performance during the last two years of CP4 meant that Network Rail was likely to be below the performance targets (public performance measure (PPM) and cancellations and significant lateness (CaSL)) in England and Wales during the first two years of CP5. We agreed a performance plan,

proposed by your team, which set out how Network Rail was going to recover performance over that period to get back on trajectory to achieve the CP5 regulated performance outputs by the end of 2015-16. ORR's analysis, set out in the Network Rail Monitor published on 20 November shows that Network Rail has fallen short of the performance trajectory you specified in the plan. Although the company is largely delivering on the milestones outlined in the plan it would appear that these are not having the anticipated effects on performance.

I know that both you and your Board share our concerns about current performance. We discussed what was needed to recover the position. This is a very important issue because, if performance does not recover, the end CP5 targets will be at risk.

While recognising that each route has its own issues, Mark Carne advised us of the five core strategies which the company is adopting to recover performance:

increased asset reliability (track and train);

elimination of temporary speed restrictions;

increased weather resilience;

improved operation to the timetable and improvements in the timetable themselves; and

a reduction in the impact of reactionary delay.

We recognise that there are areas where performance has been strong: for example some long distance operators are exceeding punctuality targets in terms of PPM and CaSL (CaSL is of particular importance to long-distance passengers). Network Rail has also taken positive steps such as filling maintenance vacancies to ensure backlogs are tackled, simplifying business critical rules, improving leadership in platform/train interface and the roll out of the safe work leaders' initiative to ensure improvements in worker safety something Mark has championed strongly and personally.

We also recognise that there are elements of the five core strategies where Network Rail needs the co-operation and joint ownership of the train operators to deliver. These include increasing rolling stock reliability and improving the operation of the timetable which can also contribute to reducing reactionary delay. We understand discussions are progressing
on these issues in the Rail Delivery Group and we are ensuring our views are clearly represented through our participation in the National Task Force.

Nevertheless, of your five core strategies, three (increased asset reliability, the elimination of temporary speed restrictions and better weather resilience) depend on Network Rail's delivery of the maintenance, renewals and enhancement work it committed to and was financed for, as part of the CP5 settlement. The delivery of this work is crucial for delivering the asset reliability needed for the growth in the use of the rail network.

Richard Price's letter of 9 December to Mark sets out the details of our concerns. On renewals, there are major discrepancies between the volumes in the delivery plan and what has been delivered in practice. We also have real concerns about maintenance volume reporting where the data is not good enough for either ORR or Network Rail to rely on its accuracy and assess progress with the maintenance programme. On enhancements, we are still at an early stage in CP5 but some critical milestones have been missed. The enhancement programme is crucial to delivering new electrified parts of the railway, as well as providing extra capacity to reduce crowding, and improvements to service reliability and journey times.
I know that Mark and your team share these concerns and are acting on them. These are all crucial issues for users of the railway. Our teams are in touch to monitor progress.

I am sure Network Rail's Board will also be reviewing progress against the agreed targets and milestones for CP5. I suggest we meet again at the end of the first year of CP5 (in April or in May 2015) to hear your assessment of progress in the crucial areas.

CP5
We also discussed a number of issues ORR has been considering in relation to CP6 and therefore need to be explored with you and the sector.

We explained that, from our experience on consultations for CP5, policy development is complex and time is needed to explore options fully given the importance of robust evidence and analysis and the range of organisations which need to be involved. With this in mind, we are scoping and carrying out work in a number of areas in advance of publishing our first PR18 consultation document in early 2016.

First, we will focus on how we set your price control as a monopoly company, learning from PR13 and other regulatory experience. We have started two forward-looking pieces of work to improve how we regulate Network Rail in the next control period:

to understand better what role comparison within Network Rail (e.g. by route or activity) could play at the next price control (recognising that we already expect more to be made of comparison in our monitoring of CP5). Comparisons are widely used in water, energy and healthcare regulation; and

to understand whether there are lessons which can be learnt more generally from the experience of different approaches to cooperative working between Network Rail and TOGs in the operation or enhancement of the railway.

Secondly, following on from our initial thinking in PR13 and working closely with the Rail Delivery Group, we are looking at how the structure of Network Rail's charges can be reformed to improve incentives on the company, and the wider industry. This could begin to address in a number of possible areas, including:

incentivising TOGs and FOCs to reduce network costs;

incentivising TOGs and FOCs to use the network efficiently;

incentivising Network Rail to deliver more of what its customers want, for example capacity, journey time; and

improving transparency so funders who provide about £4 billion a year in network grant have a better understanding of what the grant funds.
Finally and closely linked to the two other areas -we mentioned that we are starting to think about the different functions which make up Network Rail and specifically whether our regulation could provide better incentives and a clearer focus on Network Rail's role in operating the system as a whole ("system operator") including:

making better use of the constrained network (incentivising Network Rail to identify opportunities for additional services); and

as Network Rail develops its ideas in relation to the digital railway, whether the regulatory framework exists to ensure that the additional capacity created is utilised efficiently and trade-offs between capacity and performance are explicitly understood.

I hope you find this letter helpful both in providing an update on how we want to see Network Rail meet the delivery challenge in CP5 and setting out some of our initial thoughts on the key areas which we think should form the basis of a broader discussion in starting to prepare for PR 18. ORR's Board will look forward to progressing both important issues with you.

Yours

Anna

Anna Walker


Railhub Archive ::: 2014-12-16 ORR-001





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